December 2006

You are currently browsing the monthly archive for December 2006.

Thank you

December 23, 2006 in Miscellaneous | Permalink

I would like to thank all my loyal readers for a great year. In just over 11 months, the Healthcare Economist blog has greatly expanded and now attracts over 500 visits (and over 2000 hits) per day. People from all over the world read this blog. The national readership list includes the following countries:

Albania, Algeria, Argentina, Australia, Austria, Bahamas, Bahrain, Bangladesh, Barbados, Belgium, Bosnia-Herzegovina, Brazil, Bulgaria, Cameroon, Canada, Chile, China, Colombia, Cyprus, Czech Republic, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador, Estonia, Ethiopia, Fiji, Finland, France, Gambia, Germany, Great Britain, Greece, Guam (USA), Guatemala, Hong Kong, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lesotho, Libya, Lithuania, Luxembourg, Macau, Macedonia, Malaysia, Maldives, Malta, Mexico, Moldova, Nepal, Netherlands, Netherlands Antilles, New Zealand, Nigeria, Norway, Pakistan, Peru, Philippines, Poland, Portugal, Puerto Rico, Romania, Russia, Saudi Arabia, Senegal, Singapore, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Trinidad and Tobago, Turkey, Uganda, Ukraine, United Arab Emirates, United States, Venezuela, Vietnam, Yugoslavia, Zimbabwe.

Beginning on Sunday, I will be going on vacation to Playa del Carmen in Mexico until January. I wish all my readers a happy and healthy new year. Hasta pronto!

Type I vs. Type II errors

December 22, 2006 in Econometrics | 2 comments

One of the basic concepts in statistics is the use mathematically rigorous tests to determine whether or not a researcher can reject their null hypothesis. The null hypothesis is the state of the world the researcher assumes exists. The alternative hypothesis is—as the name suggests—an alternative to the null hypothesis. Through these statistical tests, researchers try find the truth regarding a certain phenomenon. The degree of certainty the investigator has in his or her conclusion depends on the amount of type I and type II error in their calculations. Type I error occurs when the null is incorrectly rejected; type II error occurs when we fail to reject the null, when in fact the alternative is true. Below are more concrete examples of type I and type II errors.

Criminal Justice

In the criminal justice system, defendants are assumed to be innocent until proven guilty. Thus, the null hypothesis is that the individual is innocent while the alternative is that the defendant actually committed the crime. A type I error would occur if the individual was convicted of a crime they didn’t commit. A type II would presents itself when a guilty man is set free.

Clinical Drug Trial

In the case of a clinical test for a new pharmaceutical, the null hypothesis would be that a new drug (drug N) is no better than the current drug (drug O). On the other hand, the alternative hypothesis would state that drug N is superior to drug O. A type I error would conclude that the new drug is better than the drug O, when in fact it is not. A type II error would conclude that the new and old pharmaceuticals are equivalent when in fact the drug N is superior.

Matt Miller on Marketplace

December 21, 2006 in Current Events | Permalink

Matt Miller was on NPR’s Marketplace on Tuesday.  Miller was advocating the creation of a government controlled health system.  While his arguments citing the benefits of nationalized health care are compelling, he does not address some of the drawbacks (e.g.: decreased technological innovation in a single payer system, increased risk of corruption, etc.).

The most interesting point Miller makes is the following: “If big-company health plans today are really just socialized health republics, for example–in which the young subsidize the old while everyone pays identical premiums–why shouldn’t this principle of risk pooling apply economy-wide?”  Nationalized health insurance would certainly increase risk sharing, but they would drastically reduce consumer choice.  Employers generally offer employees a few health care plans to choose from, and if the worker is still not satisfied, they can leave and find insurance at another firm.  In other words, if large firms are republics, then individuals may exhibit Tiebout sorting by choosing employers whose benefit package best fits their needs and this phenomenon may or may not be inefficient.
For Miller’s full article, visit the Matt Miller website.

Influenza Vaccination: Part VI

December 20, 2006 in Uncategorized | Permalink

A week ago, we looked at Nichol’s 2003 paper regarding LAIV for healthy working adults. Today we will review the rest of the literature regarding the effectiveness and the economic impact of influenza vaccination for working-aged adults.

The seminal work in the literature is written by Nichol and colleagues in the October 1995 edition of JAMA. The authors use a randomized, double-blind, placebo-controlled trial in Minneapolis-St. Paul, MN during the 1994-1995 flu season. The authors found significant health benefits from the vaccination.

Rate per 100 subjects
Placebo Vaccine Δ Vaccine Effectiveness P-Value
Upper Respiratory Illness (URI) 140 105 35 25% <0.001
Days of sick leave from URI 122 70 52 43% 0.001
Physician Visits for URI 55 31 24 44% 0.004

The authors also conducted a cost-benefit analysis.

Direct Costs
Vaccination $10.00
Side Effects $0.70
Medical care avoided -$16.68
Total Direct Savings -$5.99
Indirect Costs
Work time lost for vaccination $5.84
Work loss due to side effects $1.87
Work loss avoided -$48.57
Total Indirect Savings -$40.86
NET SAVINGS -$46.85

This paper was one of the first to conclude that it is cost effective to vaccinate healthy working adults. The authors also found that the only statistically significant difference in side effects between the vaccinated and placebo group was arm soreness. No evidence of increased tiredness, fever, muscle aches or headaches from the vaccination was found compared to the placebo group.

In 2001, Nichol re-analyzed the cost effectiveness of flu vaccination using parameters estimates from a variety of studies and then conducted a Monte Carlo simulation. In this paper, Nichol found that flu vaccination of healthy adults was beneficial but the results were of a smaller magnitude than in her 1995 study. Cost savings from vaccinating healthy working adults was now only $13.66 per person instead of the $46.85 stated in the 1995 study.

Lee, et al. (2002) uses a decision tree framework. Even if individuals become sick more often without the vaccination, they could use an antiviral treatment to decrease the flu’s effects. Thus, not having a vaccine may not actually increase sickness incidence rates. Using previously published data regarding individuals between 18 and 50 years of age, Lee finds that vaccination and treatment with rimantadine (if infected) saves $30.97 per person compared to no vaccination and no ex post treatment. Vaccination and the use of rimantadine saves $26.36 per person compared to no vaccination and treatment with rimantadine if the person becomes infected.

Not all papers, however, agree that vaccination of healthy adults is cost effective. Influenza vaccines are only cost effective when they are well matched to the influenza virus types currently circulating in a given flu season. Using a double-blind randomized, placebo-controlled trial of Ford employees in Michigan, Bridges, et al. (2000) investigate the cost effectiveness during the 1997-1998 and the 1998-1999 flu seasons. In the 1997-1998 flu season, the vaccine was only 50% effective against the flu and thus the authors found a net cost to vaccination of $65.59 per person. In the subsequent flu season, the vaccine efficiency increased to 86%, yet Bridges still finds a net societal cost of $11.17.

  • Bridges, Carolyn B., William W. Thompson, Martin I. Meltzer, Gordon R. Reeve, Walter J. Talamonti, Nancy J. Cox, Heather A. Lilac, Henrietta Hall, Alexander Klimov and Keiji Fukuda. “Effectiveness and Cost-Benefit of Influenza Vaccination of Healthy Working Adults: A Randomized Controlled Trial.” The Journal of the American Medical Association, 2000, 284 (13), pp. 1655-1663.

  • Lee, P. Y., D. B. Matchar, D. A. Clements, J. Huber, J. D. Hamilton and E. D. Peterson. “Economic Analysis of Influenza Vaccination and Antiviral Treatment for Healthy Working Adults.” Annals of Internal Medicine, 2002, 137 (4), pp. 225-231.

  • Nichol, K. L. “Cost-Benefit Analysis of a Strategy to Vaccinate Healthy Working Adults Against Influenza.” Archives of Internal Medicine, 2001, 161 (5), pp. 749-759.

  • Nichol, K. L., A. Lind, K. L. Margolis, M. Murdoch, R. McFadden, M. Hauge, S. Magnan and M. Drake. “The Effectiveness of Vaccination Against Influenza in Healthy, Working Adults.” The New England Journal of Medicine, 1995, 333 (14), pp. 889-893.

  • Nichol, Kristin L., Kenneth P. Mallon and Paul M. Mendelman. “Cost Benefit of Influenza Vaccination in Healthy, Working Adults: An Economic Analysis Based on the Results of a Clinical Trial of Trivalent Live Attenuated Influenza Virus Vaccine.” Vaccine, 2003, 21 (17-18), pp. 2207-2217.

Economist’s Books of the Year 2006

December 19, 2006 in Miscellaneous | Permalink

The Economist magazine has posted its Books of the year list for 2006.

Physician licensure and quality: Part IIX

December 19, 2006 in Licensure, Supply of Medical Services | Permalink

In The Social Transformation of American Medicine, author Paul Starr analyzes the development of modern American medicine. A large portion of the book looks at the roots of physician licensure. His analysis dates back to the colonial era. Some important turning points in the history of physician licensure before the twentieth century are:

  • In the 17th century, “[colonial] legislatures would now and then bestow licenses on worthy doctors, but the acts themselves indicate that these men had already been in practice for years.”
  • “An early Massachusetts law…states that no one ought to engage in healing ‘without the advice and consent of such as are skillful in the same Art, (if such may be had) or at least some of the wisest and gravest then present.’”
  • In 1760, New York City passed the first law which called for the examining and licensing of prospective doctors and placed a fined on unlicensed physicians. Unlike present day medical societies, licensure authority rested with city officials.
  • “In 1763 physicians in Norwich, Connecticut, requested their colonial legislature ‘to Distinguish between the Honest and Ingenious Physician and the Quack or Empirical Pretender’ by allowing doctors to found societies with licensing power. Both these bids for authority were rejected.”
  • After independence, medical societies were organized in many states, and legislatures often extended them licensing powers. Since there was no set standard for education or achievement in order to obtain a license, the medical societies were largely ineffective in restricting physician supply. The societies faced a fundamental problem. If high standards for membership were implemented,the group size would be small and the society would not be able to outlaw ‘quacks’ or stop price competition; lowering standards and admitting more practitioners would weaken the society’s position that the organization’s goal was to maintain high quality standards.

Starr distinguishes between ‘hostile’ and ‘friendly’ licensing. The ‘hostile’ form occurs when government officials are placed in charge of physician licensure; the ‘friendly version manifests itself when licensing is self-regulated within a profession. While friendly licensing did appear in NYC in the late eighteenth century, it only manifested itself on a large scale in the late nineteenth century.

  • In 1877, Illinois passed a law empowering a state board of medical examiners to reject diplomas from disreputable schools. “Under the law, all doctors had to register. Those with degrees from approved schools were licensed, while others had to be examined. Of 3,600 nongraduates practicing in Illinois in 1988, 1,400 were reported to have left the state within a year. Within a decade, three thousand practitioners were said to have been put of of business.”
  • In 1888 in the Dent v. West Virginia case, the U.S. Supreme Court upheld a West Virginia law which required practitioners “…to hold a degree from a reputable medical college, pass an examination, or prove that he had been in practice in the state for the previous ten years.”
  • In the 1898 the Hawker v. New York case extended the grounds for denying a medical licensing. The Supreme Court decision noted that “character is as important a qualification as knowledge.”
  • In 1901, the Missouri board of health was empowered to act as a board of medical examiners.

Despite increased control of physician licensure, the American Medical Association still was not successful in restricting the supply of doctors, because as licensing requirements increased, the number of medical schools awarding physicians licenses increased just as rapidly. Thus, not until the Flexner report—when the AMA gained control over medical education standards in the United States—were physicians able to truly restrict medical practitioner entrance and create economic rents for existing providers.

Are you rich?

December 18, 2006 in Economics - General | Permalink

In the Economist’s December 9th issue, the magazine reviews (“The wealth of nations…“) a World Institute for Development Economics Research (WIDER) effort to measure how personal wealth (i.e.: financial assets, real estate, consumer durables, livestock) was distributed throughout the world. If you have just over $2000 in net assets to your name, you can be considered in the richer half of the world.

Minimum Wealth Required to be in:
Top 50% $2,161
Top 40% $3,517
Top 30% $6,318
Top 20% $14,169
Top 10% $61,041
Top 5% $150,145
Top 1% $514,512

An interesting point made by the article is that “the bottom half of Swedes have a collective net worth of less than zero.” These estimates, however, do not take into account the implicit liability most developed governments have to pay some health care and pension benefits for their citizens.

Influenza Vaccination: Part V

December 18, 2006 in Academic Articles, Medical Studies | Permalink

A final analysis of the cost of flu vaccination is provided to us by Margaret Coleman, John Fontanesi and colleagues (2004). The authors examine the cost of the vaccination for different size practices in a scheduled visit and walk-in setting. Unlike most studies, this research team decided to applied overhead expenses to cost of vaccinations. While the marginal cost of overhead from a vaccination is zero, there is an incremental cost when the physician/firm decides to offer vaccinations. Vaccination storage, hazardous waste disposal, employee training and other fixed costs are incurred when the firm decides to vaccinate its patients. Thus, policymakers should take these costs into account if they wish to price services at average cost, but not marginal cost.

The costs of an influenza shot are as follows:

Scheduled Visit



Vaccine costs Clinical Labor Non-clinical labor Overhead Total
Solo/Partner $8.84 $2.10 $25.47 $9.86 $46.27
Small $8.51 $6.05 $10.32 $9.57 $34.45
Medium $8.19 $2.00 $8.10 $9.48 $27.77
Large $7.86 $1.68 $6.46 $9.22 $25.22
Corporate $7.54 $1.35 $1.55 $9.14 $19.58
Walk-in Clinic
Vaccine costs Clinical Labor Non-clinical labor Overhead Total
Solo/Partner $8.84 $0.95 $25.47 $4.53 $39.79
Small $8.51 $2.75 $10.32 $4.42 $26.00
Medium $8.19 $0.91 $8.10 $4.32 $21.52
Large $7.86 $0.76 $6.46 $4.21 $19.29
Corporate $7.54 $0.61 $1.55 $4.17 $13.87

The vaccination cost includes the actual cost of the vaccine, plus shipping, handling and storage, less any bulk discount. At the time of the publication of this paper, Medicare payment rates were only around $12-$17 per shot. This payment rate would have only covered average costs in the case of corporate firms operating walk-in clinics.

  • Coleman, M. S., J. Fontanesi, M. I. Meltzer, A. Shefer, D. B. Fishbein, N. M. Bennett and D. Stryker. “Estimating Medical Practice Expenses from Administering Adult Influenza Vaccinations.” Vaccine, 2005, 23 (7), pp. 915-923.

Senator Wyden’s Health Care Plan

December 15, 2006 in Current Events | Permalink

Yesterday I was invited to a small-group conversation with Senator Ron Wyden regarding the Healthy Americans Act that was recently proposed.  Unfortunately I could not make it the conference, but Senator Wyden’s own Stand Tall for America website gives some (very biased) details and analysis of the plan.  Joe Paduda of Managed Care Matters has done a great job of creating a synopsis of initial reactions from the health blogosphere.  I highly recommend reading Mr. Paduda’s post.

‘When I was just 3 years old, I asked my mother why she didn’t love me’

December 15, 2006 in Miscellaneous | Permalink

A touching and compelling story about tuberculosis in the United States can be found in last Sunday’s Washington Post (“Quarantined“).  The mother of the author spent 114 days in the Glenn Dale Hospital, which during the 1950s functioned as a sanatorium for people with TB.

The article states that 2 million people die from tuberculosis each year—mostly in developing countries—and about one third of the world’s population is infected with the disease.

« Older entries